Top Indian and global asset managers are firming up plans to launch higher risk investment products, after the country's markets regulator allowed fund houses to offer investors such options.
Last month, the Securities and Exchange Board of India (SEBI) allowed asset management firms to offer riskier strategies, such as long-short equity and derivative-based plans. These options will require a minimum investment of 1 million rupees ($11,939.59) and will be offered to investors who can take on higher risk.
Five asset managers, which hold a combined 25% of assets under management (AUM) in India's mutual fund industry, said they expect to launch such investment options in the next six-eight months, according to executives at these firms.
"We have three-four strategies in the works and will figure out which is best suited basis market feedback. Strategies such as long-short equity are in discussion," said Swarup Mohanty, CEO of Mirae Asset Investment Managers, a unit of South Korea's Mirae Asset Financial Group.
Presently, alternate investment funds (AIF) offer such higher risk investment plans but the minimum investment size is 10 million rupees. These funds are subject to fewer regulatory requirements.
The new investment options offered by mutual funds will be similar to those offered by hedge funds, but will still need to follow strict risk disclosure requirements and investment limits.
Derivatives exposure has to be limited to 25% of the fund's assets, SEBI said last month.
The regulator is yet to announce final guidelines for investment caps and risk disclosures.
The global hedge fund market was estimated at $5 trillion in 2023, according to Global Markets Insights.
As of April 2024, portfolio managers in India managed 33.65 trillion rupees in assets and AIFs managed 11.3 trillion rupees.
Foreign asset managers will have an initial advantage and can leverage learnings from international markets but expertise will develop with time across the industry, said Sundeep Sikka, CEO of Nippon India, a unit of Japan's Nippon Life Insurance Co.
The new fund offering will be completely different from our regular funds, Sikka said without elaborating further.
Domestic fund houses ICICI Prudential Mutual Fund, DSP Mutual Fund and Edelweiss Mutual Fund are also finalising plans to launch such options, executives at these funds said.
"Investment teams across mutual funds are continuously evaluating various strategies, and we can expect to see some innovative approaches emerge that will ultimately benefit investors," said Chintan Haria, principal - investment strategy at ICICI Prudential AMC, India's second-largest fund house by AUM.
While fund houses are viewing this as an opportunity to launch these investment plans, investor interest and scalibility will strengthen over time, Haria said.
